The 2011-2012 mid-year economic and fiscal outlook released by the Treasurer on 29 November 2011 announced a number of significant superannuation changes, including:
- Abolishing the superannuation guarantee maximum age
limit with effect from 1 July 2013
From 1 July 2013, employers will be obliged to make superannuation contributions for eligible employees regardless of their age, as a result of the abolition of the current age limit of 75 that applies to the superannuation guarantee regime. In addition, employers will be able to claim a tax deduction for superannuation guarantee contributions for employees aged 75 and over as they are currently able to for employees under 75 years of age.
- Extending the current pension drawdown relief to
2012-2013 in respect of minimum payment amounts for account-based,
allocated and market linked pensions
Under the current pension drawdown relief, retirees are entitled to a 25% reduction in minimum payment amounts. The Government had previously indicated that minimum payment amounts would return to normal in 2012-2013. However, due to the continued volatility of equity markets and prices remaining significantly below the levels reached prior to the global financial crisis, the current pension drawdown relief has been extended to assist retirees recoup capital losses on their pension accounts as the markets recover.
- Pausing indexation of the concessional contributions
cap for 2013-2014
The indexation of the concessional contributions cap will be "paused" for 2013-2014 and will therefore remain at $25,000 for individuals under the age of 50 and $50,000 for individuals age 50 and over. Indexation of the concessional contributions cap will be deferred until 2014-2015 when it is expected to rise to $30,000. For individuals over age 50 whose account balance is under $500,000 it will be $55,000 (assuming the Government's announced changes are adopted). This pause in indexation will also affect the non-concessional contributions cap, which is set at six times the "under age 50" concessional cap.
- Introducing a measure into the superannuation law to
ensure certain superannuation fund trust deed clauses cannot be
used to avoid what would otherwise be excess contributions from
being counted against the caps
This integrity measure is aimed at trustees that act in accordance with trust deed clauses that are designed to treat amounts that would otherwise have been contributions to the fund as not having been accepted by the fund where those contributions would lead to a breach of the caps. Such trustees will be deemed to have accepted the excess contributions, notwithstanding the trust deed clause, if the amounts have not been returned promptly and have in effect been intermingled with assets of the fund.
- Withdrawal of Taxpayer Alert 2010/2 - Circumvention
of Excess Contributions Tax
Given the introduction of this integrity measure (commencement date yet to be announced), the Australian Taxation Office (ATO) withdrew Taxpayer Alert 2010/2 - Circumvention of Excess Contributions Tax (TA 2010/2) on 29 November and has published a fact sheet Fund rules intended to prevent excess contributions tax (fact sheet) to support the withdrawal of TA 2010/2 and provide guidance to taxpayers and practitioners.
In TA 2010/2, the ATO warned taxpayers about relying on clauses in trust deeds which provide that a separate trust is created when a contributions cap is exceeded and such trust continues to exist in parallel with the superannuation fund until the excess amount is returned to the contributing person. Pursuant to these clauses, the trustee is not taken to have accepted the excess amount as part of the superannuation fund and the relevant member is therefore not liable to excess contributions tax. The ATO expressed the view that excess amounts purported to be held by the trustee on separate trust for the member are contributions for the purposes of the Superannuation Industry (Supervision) Act 1993 (SIS) and the Income Tax Assessment Act 1997. It suggested that where amounts were returned in reliance on such clauses, this might be contrary to the contributions, preservation and cashing operating standards in SIS. Further, it stated that trustees which applied such clauses could be at risk of breaching the sole purpose test in section 62 of SIS. The ATO did not, however, explain in TA 2010/2 why it considered these clauses to be ineffective.
- Fund rules intended to prevent excess contributions
The ATO's fact sheet states that a trustee is under a duty to consider promptly whether any amount received is in fact a contribution (ie whether, on accepting the payment, the amount will become part of the capital of the fund). Where a governing rule of a superannuation fund is designed to prevent certain payments from being a contribution to the fund, the ability of such a rule to prevent a payment from being a contribution will depend on its effect as a matter of trust law. The ATO considers that this is a question as to whether the rule prevents the payment from increasing the capital of the fund. The ATO says that: "The effect of such a rule must be assessed having regard to its particular terms, interpreted in the context of the surrounding provisions and the governing rules of the fund as a whole."
The fact sheet goes on to state that: "A governing rule will not prevent a payment from being a contribution where, on its proper construction, it merely empowers the trustee to return or otherwise deal with a payment which is already a contribution to the fund - that is, which has become part of the capital of the fund." Trustees will therefore need to consider whether the provisions contained in their trust deed would be considered by the ATO to be effective, applying the principles set out in the fact sheet.
- Treatment of payments which are contributions
The fact sheet specifies that if a payment to a trustee is a contribution, its character will not be affected by any subsequent actions taken by the trustee. Accordingly, the contribution will be preserved as a superannuation benefit of the member and, if it is returned to the member, the trustee will contravene SIS in circumstances where the member has not satisfied a condition of release.
- Treatment of payments which are not
The fact sheet further specifies that any payment or part thereof which the trustee retains, despite the amount not forming part of the fund under the fund's governing rules, will be an asset of a different trust, separate and distinct from the superannuation fund. The trustee is therefore under a duty to keep such amounts separate from the trustee's assets and the assets of the superannuation fund, and should act promptly to either return the amount to the person who paid it or separate the amount from the assets of the fund.
The fact sheet also indicates that the beneficiary of the separate trust (ie the payer of the relevant amount) must account for income tax on income from the separate trust, and a failure to do so will expose the payer/beneficiary to penalties and interest. The trustee, in such circumstances, must account to the payer/beneficiary of the separate trust for any income or expenses associated with that trust separately from those of the superannuation fund, and ensure that the assets of the fund are not used to meet expenses of the separate trust.
The issue of the fact sheet is welcome insofar as it reflects acknowledgement by the ATO that clauses of the relevant type may be effective, and the withdrawal of TA 2010/2 suggests that the ATO no longer thinks that entities involved in "arrangements" covered by that Tax Alert may be promoters of tax avoidance schemes. Nonetheless, it seems likely that circumstances will arise in which the ATO and a trustee and its advisers will take a different view on the effectiveness of such clauses, and so the current uncertainty is by no means resolved.
Should you have any queries regarding this Superannuation Update, please do not hesitate to contact us.
© DLA Piper
This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.
DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to www.dlapiper.com